Vitrolife AB (publ) (VITR) Earnings Call Transcript & Summary

Welcome to Vitrolife Q2 2026 earnings call. [Operator Instructions] Now I will hand the conference over to CEO, Bronwyn Brophy; and CFO, Par Ihrskog. Please go ahead.

Good morning, everyone, and thank you for dialing into the Q2 2026 Earnings Call for the Vitrolife Group. I would like to start with 3 key highlights in the quarter. We delivered record revenue of SEK 358 million in consumables, which represents 15% organic growth in our Americas region. A net income of SEK 129 million and an EPS of SEK 0.95. We also launched EmbryoPass and EmbryoViewer Pro. So for the first time we can compete in the embryo transfer segment. EmbryoViewer Pro, which we recently showcased at the Extra Congress is an advanced software program for our EmbryoScope pharma system. I will now move [indiscernible], and I would like to provide you with an overview of the market in each of our regions, starting with EMEA. European IVF cycle activities appear to be at normal levels. However, in the EMEA region, the Middle East crisis is impacting IVF cycles significantly. We do not, individualize group, the Middle East distributors restocking at this time. In fact, the aerospace has been regularly closed. So even shifting growth into the region is a challenge. In the APAC region, which I recently visited myself, we -- in China, we see that IVF cycles are declining year-over-year. This trend is expected to continue based on population demographics. The Southeast Asia within APAC is growing as access increases. In Japan and Korea, the combined markets are in low single digits, although the birth rate in Korea have rebounded significantly in 2026 with total fertility increasing above 0.9 for the first time in many years. So one could reasonably expect a pickup in cycles in South Korea. In the Americas region, if we look at the U.S., cycle activity was very slow at the start of Q2, so it's [indiscernible] start to pick up in the month of June. There are wide variations between the U.S. states with welfare areas like Massachusetts, New York and Southern California performing stronger. In South America, we see an increased presence of low-cost generic competitors in Genetics. Cycle activity remains robust in the Americas region in South America within the Americas region, just to be very specific on that one. Okay. So moving on to look at the performance in our largest region, EMEA, which accounts for 37% of our global revenue as is evidenced from our donor here on the right-hand side of the slide. We delivered 1% organic growth in local currencies, excluding the exited business of NACE and GDPX. Western Europe remains strong. However, IVF cycles, as I've just mentioned, are significantly down in the Middle East, and this weighed on the regional performance. Consumables grew 4% in local currencies, with Europe performing well, and the Middle East behind prior year. Technologies increased 3% in local currencies with installs in Europe offset by low capital demand in the Middle East. And we are also seeing positive trends month after month in the consumable revenue stream from our EmbryoScope systems. Genetics decreased by 3% with the Middle East volumes down substantially. We've been focusing on driving margin improvement in all regions. So it's very pleasing to see the positive trend in our gross margin. So if you just look at the chart, for the first time, you won't have seen this in previous slides that I've presented, but we have added the gross margin trends. What you see here is a 2 percentage point improvement in gross margin, primarily driven in the case of EMEA by the exit of NACE and GDPX, and also our operational efficiency program, which we have been focusing on across the Vitrolife group. We will now move on and look at the Americas. In the Americas region, we delivered 1% organic growth in the open currencies. The share of revenue coming from Americas now stands at 34%, and as you can see here in the [indiscernible] on the right-hand side. North America performed well across the portfolio. You know that this is one of our key focus markets. We've been doubling down here for a couple of years now. South Americas exit from low-profit genetic accounts reduced top line growth, but it improved the regional profitability. Consumables increased by 15% in local currency, with significant gains in media in North and South America, and we are dosed with these wins because we doubles out to take share here. And I want to thank my team for their huge efforts in bringing these wins over the line. Time at decreased by 9% due to a large capital deal with the [indiscernible] in the same quarter last year, which most of you would likely remember. South America had a very strong capital sales quarter as we increase our focus on EmbryoScope, both increasing the penetration of the capital systems but also the utilization of those EmbryoScope. Genetics decreased by 3%, with continued growth in our key focus markets of North America, offset by the exit of low profit accounts in South America. This is a strategic decision. We do not want to play in low-profit segments. We are a premium service differently in this company with best-in-class technology and genetics and we will not follow low-price generic competitors. At 3.6 percentage point improvement in our gross margin, and this is really down to our increased focus in consumables in Americas. Again, this is a strategic decision to focus on this area, and we believe we have further opportunities in consumables and in technology, particularly in South America but also in North America. Okay. We will now find move on to the APAC region, where we had a decline of 1% organic growth in local currency. APAC now accounts for 29% of our global revenue. We just launched to report that Japan delivered strong growth, our best in several years, in fact. We continue to expand our share across the portfolio in Southeast Asia. However, as I've mentioned, demand in China slowed further as the quarter progressed. Sales and consumables decreased 5% with a strong performance in Southeast Asia and Japan, offset by weak demand in China. Technologies increased by 6%, primarily driven by capital sales in Japan. It is particularly pleasing to see because Japan is a highly penetrated market for EmbryoScope. So they call out to our Japan team for the really nice job that they have done there. Genetics increased by 2% across the region to slightly above the regional growth rate for APAC at present. A 1.4 percentage point increase in gross margin driven by price increases and operational efficiency. The team on the ground has done a really nice job here. So driving price gains in a very competitive market is not an easy thing to do, and I take the Vitrolife Group APAC team have done a really nice job here. Okay. So we launched the final -- my final slide at least before I hand over to Par. As you know very well by now, the Vitrolife Group has a mission to be the leading global partner in reproductive health, striving for better outcomes for patients. We focus on 3 key focus areas to get to that positive number on spot they are growth, innovation and operational excellence. So how are we doing? Are we advancing in these key areas. So when it comes to growth, we are driving profitable growth. So we've improved market and customer segmentation. And I think you can really see this in this quarter. We are doubling down on the market, on the areas of the portfolio and on the customers where Vitrolife can processable growth. We are gaining share in consumables and a 15% organic growth in the Americas EMEA, but that's very well above. The growth rates there, and we are increasing the penetration and utilization of EmbryoScope. We are also building out our platform solution with the combination of EmbryoScope and eWitness. In relation to innovation, we're not just talking about innovation, we launched EmbryoPass and EmbryoViewer Pro, which we share [indiscernible]. However, we also have more launches and in the coming quarters, and I really want to thank our R&D and innovation team for the work that they've been doing there. We're also advancing the efficiency of IVF clinics partnering with our customers and driving the use of AI in Embryo selection. When according to operational excellence, we continue to invest in digital capabilities to improve the customer journey and our connectivity with [indiscernible]. We have taken actions, and you can see this in our quarterly results. We have taken actions to optimize our cost base across operations and back off. So we are doing what we said we would do when it comes to our restructuring program. So I would say, in summary, we are advancing our mission, and we are doing it in a profitable, sustainable way. I will now hand you over to Par, who will take you through the key financials.

Thank you, Bronwyn. So let's start with just some more information on the geographic segments. Now we go through besides explaining sales and gross margin -- gross income and gross margin. I just want to add the market contribution than we had same pattern there as on gross margin improvements in all regions and also for the total then. So Americas ended up at gross contribution market of 33.8% as improvement of more than 4% points compared to quarter 2 last year. And EMEA, 39.4% compared to 35 % last year. And then APAC, 44% compared to 41% last year. And in total, [indiscernible] for Vitrolife Group, 38.8% compared to 34.7%. So the market contribution is, of course, improved Part of it is the improved gross margin, but also the reduction in OpEx related sales and marketing costs. Moving to the next slide. The highlights then. Net sales ended up at SEK 857 million. That's minus 2% growth in SEK. I will come back to more details on some of the on the next slide. Our gross income, [ SEK 517 million ], which is represented margin of 60.3%, almost 2 percentage points improvement from last year. And then an EBITDA of SEK 295 million, equal to a EBITDA margin of 34.4 compared to 27.8. In the quarter, we had, of course, the effect of this strong gross margin, but also that we have -- we are working hard on the cost production program. But we also have some onetime items in the quarter amounting to SEK 13 million. So the lift on the sales development. We have the minus 2% growth in SEK is explained by an organic growth of 1%. But then we have the exit of the NACE and GDPX that had full effect in quarter 2 that represents minus 2%. And then we still have a negative currency impact on top line, although it's much less now. It's only 1% now. So that's good. So all in all, this explains 2% negative growth in sake. Yes. Let's have a close look at the gross margin development the last 5 quarters, strong development, 2.3 percentage point improvement from Q2 last year. It's a result of our strategic decision to focus on higher margin products and markets. We see an improved gross margin in all regions and all other groups. A minor cost effect is also from the mix coming from that we have growth in consumables, flat in technologies and negative growth in Genetics. So we have also a positive mix effect in the quarter. Okay. And then if we have a closer look at the operational expenses. The last 5 quarters, we had a reduction of SEK 48 million compared to Q2 last year. So we continue to see the reduction that we have had now for 3 quarters in a row, and it's reflecting the positive impact of the ongoing restructuring program and continued cost discipline. But also, as I mentioned, we have a positive onetime effect amounted to SEK 13 million, primarily driven by VAT accrual release, but also in the quarter, we had a positive currency revaluation effect of SEK 8 million. It was minus 5% last -- Q2 last year. So it's SEK 13 million swing in there. And on the cash flow, our cash flow for the quarter amounted to SEK 114 million compared to SEK 151 million Q2 last year. We had a negative impact on buildup on working capital, mainly driven by an increase in our operating receivables, but also built up on inventory ahead of vacation period. And then a summary of the key financials then. Sales, [ SEK 801 million ] gross -- [ SEK 807 ] million in Q2. Gross margin, 60.3%. EBITDA SEK 295 million, strong EBITDA margin of 34.4. Net income, SEK 129 million compared to SEK 100 million in Q2 last year and our earnings per share, 0.95 compared to 0.74 last year in Q2 and then our operating cash flow SEK 140 million compared to SEK 151 million. And our net debt EBITDA ended up at SEK 0.7 billion compared to EUR 0.9 billion. Okay. And then as Bronwyn also mentioned, yesterday, the Board approved a share repurchase program and which we communicated to a press release yesterday night. It's a program to repurchase shares up to a maximum of SEK 500 million, starting tomorrow until the AGM 2027. This program aims to optimize the capital structure and enhance shareholder value. The repurchase will be made on NASDAQ Stockholm in line with applicable regulations and treasury shares may not exceed 10% of outstanding shares. And this repurchase program is in addition to Vitrolife Group dividend policy. The AGM on the fiscal May 2026, approved a dividend of at SEK 1.10 per share. totaling a sake of SEK 149 million for full year 2025. So that was my last slide. So we open up for Q&A.

[Operator Instructions] The next question comes from Ludwig Germunder from Handelsbanken.

So I'll keep it to one as wished, and I want to keep it to Genetics. So just to make sure we get things right. So you mentioned how the Genetics exit tests are impacting the group development. But if you break it down and focus just on the Genetics development, how do you see things moving following the exit of test? And how do you see things progressing going forward?

So thank you for your question, Ludwig. I just want to make sure that I understand it. So having exited NACE and GDPX, how do we see the Genetics business going forward. Is that correct?

Yes, exactly. So for the remainder of what was left basically.

Yes. So obviously, we actually have completely exited those 2 tests now. most of the revenue came from the EMEA region. So that's the region that has been most impacted by this act. But as is also evidenced in South America, we are also exiting low profit accounts. So we -- there are in certain parts of the world, primarily in Latin America. We see an increase in generic competition with very low prices. We're not going to blame low-cost generic segments. So we have been exiting certain accounts in that region as well. It has had a top line impact in the quarter, but it improves our profitability. And I think strategically going forward, we will continue to do that. So if we see an opportunity to improve the profitability of our business and it doesn't make sense to stay in lower profit accounts, we will continue to do that. So we are very much doubling down on driving profitable growth across all portfolios, the main areas where we have lower profit accounts are on the Genetics side. So we will continue to do portfolio or I guess, account rationalization is probably the best way to do that going forward. It benefits of profitability. -- and it allows us to focus on driving growth in the more profitable parts of the portfolio. Par, I don't know if you would add anything to that.

You summed it well there.

I want to say on Genetics and we're talking about profitability. I know that you don't disclose the divisional profitability. But given that this is a thing to improve profitability, could you give any more color about how we should think about genetic profitability and how it will move following this or is it possible to say anything?

What we can say, which I also mentioned in previous calls is that we increased our focus and our ability to analyze profitability on customer level and market level to help us to guide which account and which market we should focus on and which one we should not focus on. So we have increased our toolbox and our competence and focus in this area to drive profitable growth. And that will continue. We will continue to work on this and in order to improve our growth -- across the growth journey.

The next question comes from Jakob Lembke from SEB.

Yes. My question is relating to the Middle East, and I'm wondering if you can comment on roughly how much it has declined in the quarter and also if you're able to decipher any trend in any direction in the recent weeks for all months?

Yes. Jakob, thank you for your question. So we don't divulge as you know, we don't have those Middle East revenue or percentage decline. But I mean it is significant, and it has been significant since the start of this more, I guess, if we're calling a cat a cat, this is -- it's a war. And what I would say is that when the negotiations between U.S. and Iran seems to be going well. There was a slight pickup in due and people were feeling more positive. But of course, we've seen a reverse in that trend in the past couple of days. And I know the market received very mixed messages on the Middle East. The reality is, and we see that cycles are significantly down across the entire Middle East region. The airspace has been closed on and off. And obviously, it's not just Iran or UAE, it's Bahrain, it's Iraq. It's -- so it's very, very difficult to even do business in that region right now. Based on what we saw in June, if a deal can be reached between the Iranians and the Americans and the Strait of Hormuz opens back up, we feel that the cycles would return to normal levels. I don't want to say quickly, but the demand is there. The problem is doing business is extremely difficult. So the sooner we have piece and an agreement, I think the faster the region can get back to growing again, but it is in negative territory right now. The cycles are negatively down significantly versus last year. And we see that in all [indiscernible]. Yes. So it's a very difficult question to answer, Jakob, because I'm not trying to be evasive, but it depends on factors outside of our control, I'm afraid.

Okay. That's fair enough. And then my follow-up then is on Europe, which you say is strong. Is that you are growing sort of slightly above the cycle growth rate? Or is it sort of substantially above cycle growth rate, would you say?

I'd say it's both. It's above the market growth rate, I wouldn't say substantially. It's above the -- but we are growing above the market in Europe. Yes. Yes. That's our stronghold, and we intend to keep it.

The next question comes from Filip Wiberg from Pareto Securities.

I also got a question on Genetics here as focusing on Americas. So kind of it's impacted by the exit wave reported, but if we dig in a little bit closer into the report, you report the growth numbers have been excluding those exits. So it seems to be minus 3% instead of minus 4%. So I'm just struggling to understand a little bit on the U.S. growth in Genetics. Are you seeing any kind of acceleration? And did it actually grow in this quarter?

Genetics in North America absolutely grew in this quarter. We're doing really well there and have been for several quarters now. So North America is in very good shape. But we are exiting low-profit accounts in South America. That's the fact. So Genetics, South America is significantly down. It's a strategic decision. It's low profit account. There are generic low-cost competitors come in. We're not going to follow the market down. We have a lot of opportunities in consumables and in technologies in South America, and we prefer -- we would prefer to focus our team's efforts on accelerating the growth there, which they absolutely did in the quarter. than focusing on low profit genetic accounts. But I can tell you, Filip, we don't give the breakdown, but North America is performing very nicely in Genetics.

Yes. Okay. And then perhaps a follow-up from previous questions that Ludwig asked as well. Just in general, on genetics. So organic growth still negative across the company, even when excluding the exited business. So I'm just curious what is the path back to growth for this area?

Yes. So it's all going to be very focused. And I don't think we should look at specific products or specific tests. What we want to do is to advance the growth of the Vitrolife Group company across the entire portfolio. If we believe we can accelerate faster in certain areas, which we do, that's where we will double down, but it's very much a portfolio, okay. What we're not going to do is stay in low-profit test, low-profit markets and low profit customer account. But we are not going to do that. The name of the game for our company is driving sustainable, profitable growth. So to Par's earlier point, our commercial excellence is much more sophisticated now. So we have been building pricing muscle. Our visibility is really, really good. It's been improving all the time. So this allows us to segment the market in a much more sophisticated way. And as I mentioned during one of my slides, in genetics, we have premium products, we have differentiated technology. We're a full-service provider, and that comes with premium prices, and that's where we will drive our growth. We will drive our growth in the premium segment of the genetic services market, not in the lower cost segment.

The next question comes from Elvin Rolder from DNB Carnegie.

I have 2 questions here as well. Perhaps beginning a bit on China. Considering your comments about IF cycle activity in the region and the upcoming years here, what are your kind of expectations about price levels in China in the coming years? Do you fear that kind of like pricing levels will fall given that the clinics will have to fight for kind of fewer cycles or that vendors to the clinics will become more aggressive in pricing and kind of defending their utilization? Can you give some comments about that and how we should think of kind of, I guess, gross margins in China as well?

Yes. That's a good question. So as I mentioned, I'm just back from China. I spent some time there to really understand the market dynamics. Our prices are actually performing very well in China. In fact, we have price gains in China. We feel confident about being able to protect those prices because we -- well, we have very strong share. We have a really good reputation for quality and Chinese clinics -- I mean, everything in IVF is about success rates. That's what it's all about. And in order to drive an increasing success rate clinic typically like teams, premium proven quality products. And China is no different. So we don't feel price pressure in China in the segments where we play. I would anticipate there will be an increase in price competition in the more commoditized areas, but for EmbryoScope and for media and for needles where we also have a differentiated offering, we don't. We believe we can hold pretty firm on our pricing. So no expectations on a decline in the profitability of the China market. And I think you can see, if you look at the -- the gross margin and the contribution margin, as Par showed, we actually have a positive trend there, and we feel pretty good about that going forward.